Angel CEO says hospital investing in its future

When Tim Hubbs stepped down as the CEO of Drake Software, a Franklin firm that writes accounting software, he thought the frenzy of tax season was behind him and he would coast out his years with the hassle-free title of consultant.

He was soon coaxed into taking on the job as CEO of Angel Medical Center, however, and landed in the middle of a constantly changing industry that sometimes makes him yearn for the good old days of tax season crunch time at Drake.

When Hubbs took the helm at Angel in summer of 2008, the hospital had been through a handful of CEOs over a five-year period, most of them in interim roles. His immediate predecessor was there just two years when the hospital board decided a different direction was needed. In a replacement, the board was looking for stability and a face the community was familiar with.

“I think there was no question if I was available and willing to take that spot, they saw advantages to not having to do a search process. They thought it would be a win-win and only time will tell if that’s the case,” Hubbs said, flashing a humble grin.

The truth is, Hubbs was no stranger to health care. He had served on the Angel Medical hospital board for six years, so he had a working knowledge of local issues facing the hospital. Predating his time at Drake, he had worked in hospital administration — namely as the chief financial officer for East Tennessee Children’s Hospital — in the ‘80s and early ‘90s. It doesn’t hurt that Hubbs is Franklin born and bred and got his MBA right here at Western Carolina University.

One of his biggest challenges upon re-entry to the field?

“Obviously getting used to terminology again,” Hubbs said. “Everybody has their acronyms.” Between doctors and nurses, insurance companies, the Medicare bureaucracy and hospital regulators, Hubbs had his fair share of jargon to brush up on.

From the business end, Hubbs was struck by just how difficult it is to profitably run a hospital today.

“There is this enormous pressure to say we have to be as efficient as we can,” Hubbs said.

He has apparently done well on that front, however. While Angel only has 25 inpatient beds, they are routinely full.

One of the biggest financial challenges is failure by Medicare and Medicaid to fully reimburse hospitals and doctors for the true cost of services.

“Health care was tough from a reimbursement standpoint when I left, but it has gotten more difficult,” Hubbs said.

Factor in those unable to pay their bills who must be written off as charity cases, and the hospital’s already thin margin is constantly being squeezed.

“That is health care in general. You bring it down to a smaller, rural area, and it makes it even tougher,” Hubbs said.

A few hundred thousand for a big hospital is small potatoes, but it can be the entire operating margin for a hospital of Angel’s size. Yet there are dozens of variables that could swing revenue or expenses by that amount. It can only take one thing to throw off the balance sheet — and “there’s lots of ‘one things’ that can hurt you really bad,” Hubbs said.

The most obvious are the caliber of doctors practicing at the hospital.

“One physician can make a difference,” Hubbs said.

Hubbs has made recruiting new physicians a priority. The hospital has recruited eight new doctors in the past year.

The hospital has a roughly $45 million operating budget, Hubbs said. In recent years, the hospital has averaged a 1 to 2 percent positive cash flow. It’s too thin for Hubbs, who hopes to raise it to a 3 to 4 percent margin, the most a small, rural hospital can feasibly hope for.

But in the most recent fiscal year ending Sept. 30, the hospital saw its first minor loss in several years, Hubbs said. Hubbs would not specify how much the loss was, and isn’t required to since the hospital is a private nonprofit entity. (The information will eventually be available on the hospital’s annual 990 tax return, which is public record for nonprofit entities.)

Hubbs said the small operating loss is not a surprise, but rather was undertaken consciously. The hospital spent money in two key areas: on nurses and doctors.

While other hospitals enacted workforce reductions during the recession, Angel not only didn’t trim jobs but gave its nurses raises. Hubbs said the nurse salaries at Angel were too low and not competitive with the rest of the region.

“We had to make a pretty big commitment,” Hubbs said of the raises.

The hospital also spent money recruiting doctors. While doctors historically operate as independent practices — setting up their own offices and billing patients separately — Angel is embarking on a new trend of making doctors employees of the hospital itself. It requires more of an upfront cost by the hospital to help the doctors set up their practice and cover office overhead, with benefits realized down the road.

“We went into the year knowing we would lose money, but we saw it as an investment,” Hubbs said.